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Cross-Checking the Penguins June 12, 2003 from Allegheny Institute for Public Policy Suppose your ne'er-do-well uncle took money surreptitiously from neighbors and gave it to your two older siblings. Would you demand that he "find' more money and give it to you? That is essentially the moral analogy to the Penguins' argument that since the Pirates and Steelers got new stadiums, it is the politicians' moral obligation to ante up funds for a new arena for the Penguins. Do the Penguins need to be reminded that voters overwhelmingly rejected tax dollars for new stadiums only to have the Mayor and state politicians go behind their backs and allocate taxpayer money for the facilities? Where was the morality in breaking faith and trust with the taxpayers and voters? Let's get past this specious moral claim on tax dollars. The real issue that needs to be addressed is the team's finances. The Penguins like a great many professional sports franchises, lost money last year and are expecting to lose money next year. They argue that a new arena is they only way to secure greater revenues. But a quick glance around the National Hockey League indicates that a new arena is not necessarily the tonic that cures financial woes. During the 2002-2003 NHL season the Ottawa Senators (Corel Centre built in 1996) and Buffalo Sabres (HSBC Arena-1996) declared bankruptcy while the St. Louis Blues (Savvis Center-1994) and Los Angeles Kings (Staples Center-1999) reported substantial losses in the last few seasons. Four more teams, none with an arena more than 10 years old, are for sale. The new arena is a diversionary issue. Mellon Arena has not been declared unfit to host events, it is structurally sound and fits the purpose of hosting hockey and non-hockey events. It is true that team finances are hurt by unfavorable contracts at the Mellon Arena, leapfrogging player salaries, a general lack of fan support and tiny revenues from television. Moreover, they receive little or no revenues from non-hockey events and concession sales. Presumably, a new arena with better contracts could allow the team to gain more control over revenue streams from both hockey and non-hockey events. What the Penguins actually want is for taxpayers to subsidize their ability to increase revenues. Under a plan offered by the Allegheny Institute, the Sports and Exhibition Authority could borrow enough money to construct a new facility by setting aside some of the anticipated revenues from streams such as permanent seat licenses, naming rights, advertising, and luxury box sales. This plan allows for minimal risk to the taxpayers while providing the team increased revenues. A subsequent plan from the SEA also called for the use of revenue bonds in arena construction. The team has dismissed both plans on the grounds that it calls on the team to put forward substantial amounts of money either upfront or through diversion of arena revenues to retire debt. Here are a couple of solutions that address the team's revenue problems that do not require a new arena. First, the Penguins and the SEA should negotiate a long-term lease for the Mellon Arena for one dollar per year. This would allow the team to increase revenues by tapping into non-hockey events and increasing their take of advertising and concessions. It would also provide the team with the incentive to market the arena more aggressively for concerts, ice shows, and other non-hockey events. Second, if the Penguins are truly a valuable asset for the Pittsburgh area then there must be corporations and individuals who benefit substantially from the presence of the team. The Penguins should take advantage of the value they provide by offering non-voting shares to the public at $50 per share (perhaps a minimum 10 shares for individuals, 1000 share for corporations.) Those shares could be redeemed at market value if the team is sold and moved out of Pittsburgh. It is time for those who benefit from the presence of sports franchises to ante up to show their support for the team through purchases of ownership shares. It is not the responsibility of taxpayers to subsidize private, profit seeking sports franchises. Our previous mistakes in double-crossing taxpayers do not constitute a case for doing it again. Policy Briefs may be reprinted as long as proper attribution is given. www.alleghenyinstitute.org Links * Penguins * Penguins-plank Allegheny